A disastrous budget: Brazil prepares to make a grave fiscal error
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A disastrous budget
The government is in an economic hole—and still digging
PLENTY of countries run deficits. And when recessions occur, loosening the public purse strings makes sense for many of them. But Brazil is not most countries. Its economy is in deep trouble and its fiscal credibility is crumbling fast.
The end of the global commodity boom and a confidence-sapping corruption scandal, following years of economic mismanagement, have extinguished growth in Brazil. GDP is expected to contract by 2.3% this year. Fast-rising joblessness, together with falling real private-sector pay and weak consumption, are squeezing tax receipts. Meanwhile rising inflation, allied to a free-falling currency, means investors demand higher returns on government debt. The result is a budgetary black hole. This year a planned primary surplus (ie, before interest payments) has evaporated. Once interest payments are included the total deficit this year is projected to be 8-9% of …
Source: The Economy